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Thursday, 30 April 2015

Immigration helps the natives

At some point in the middle of 2014, opinion polls in the UK revealed that immigration became the most important issue in Britain (see graph below), surpassing even the debates on the economy (probably because the economy is now in a better shape than before, with 2014 growth around 2.6%). What best showed this change in sentiment was the homepage of the British Office for National Statistics (ONS) during the autumn of 2014, where the first figure you could see was that of net migration (which was around 300,000 in 2014). During the 'good old times' of the stagnant recovery (2009-2013), the first thing you could see when you entered the ONS website were the GDP growth estimates, followed by numbers for the CPI, budget deficit, business investments, etc. For quite some time the main page didn't even feature data for the debt and deficit. You had to dig around to find them.

Obviously the Britons are bemused with the popularity of the UK Independence Party, particularly after their unprecedented triumph at the EU Parliament elections in May 2014. They are a party which was originally focused on a single goal - get Britain out of the EU. To that goal they have added a plea to "take back control of our borders", or in other words, limit immigration. And they've landed in a gold mine. As mentioned before, according to survey data, Brits consider immigration the most important issue facing Britain, overtaking even unemployment, NHS (always an important topic in Britain) or the economy. Notice how these issues correspond to varying historical periods. Back in the 80-ies and the 90-ies unemployment was the biggest issue, followed by the NHS and immigration in pre-crisis times, overtaken completely by the economy during the crisis and the recovery, until last year when immigration started gaining momentum. The recent opinion polls confirm this trend - immigration is still the hottest issue in the country, just a few weeks before the elections.

The Conservative government was quick to respond to these trends. But not for reasons one would immediately think of. The Conservatives were simply afraid of UKIP's growing popularity, afraid that in the national elections UKIP will take many of their own voters thus causing them to lose the elections to Labour (although these fears have receded lately, as the race became neck and neck, and as the Tories are looking to UKIP as partners in their new government). Two Tory MPs have already defected away from the party, gaining two seats for UKIP in Parliament (UKIP has never held seats in Parliament before). This only further increased their popularity and their presence in the media, where their ideas to curb immigration (among other things) are gaining more and more political clout.

As a response the PM David Cameron has announced a tougher stance on immigration, and has even promised an in-or-out EU referendum for Britain if elected as Prime Minister once again. He has also announced changes in restrictions on EU migrants as a point of further negotiation between UK and the EU, aiming to restrict even the EU incoming migrants. Under current EU laws this would be prohibited since it would violate the assumption of freedom of movement and equal status of all EU citizens. Which is exactly why UKIP is calling for an EU exit, stating that "Britons must leave the EU if they want to cut immigration."

"They took 'r jobs!"

It's hard to tackle such an issue in purely economic terms. Politics has to be involved. You will hardly find an economist opposing immigration, just as you will hardly find an economist opposing free trade, or promoting rent control. However this doesn't prevent politics from imposing immigration restrictions or tariffs and quotas. All for the - supposed - protection of domestic jobs. But in economic terms it is fairly obvious that protection of jobs steaming from immigration restrictions causes much more problems than benefits.

The anti-immigration argumentation suffers from the typical fallacy that the demand for work is limited so that by giving a job to one person means you're taking it from someone else. Even though this seems quite intuitive at first (higher supply simply implies the price going down if demand stays the same), the fact is that immigration doesn't just increase the supply of labor, it also increases the demand for labor, since immigrants earn salaries they spend in the city they reside. They pay rents, buy food, clothes, cars, houses. They add to the demand for other goods and services out there, thus increasing the overall demand for labor. The exact same thing happens when a young graduate enters the job market - they don't steal a job from anyone, they simply increase the demand for jobs. Firms expand, economies grow. More people can only be a good thing for an economy over the long run. Think about why countries facing depopulation are in big problems. Those facing net immigration surely aren't. At least in economic terms.

An article in the New York Times sheds some evidence on this 'Lump of Labor' fallacy:

"The single greatest bit of evidence disproving the Lump of Labor idea comes from research about the Mariel boatlift, a mass migration in 1980 that brought more than 125,000 Cubans to the United States. According to David Card, an economist at the University of California, Berkeley, roughly 45,000 of them were of working age and moved to Miami; in four months, the city’s labor supply increased by 7 percent. Card found that for people already working in Miami, this sudden influx had no measurable impact on wages or employment. His paper was the most important of a series of revolutionary studies that transformed how economists think about immigration. Before, standard economic models held that immigrants cause long-term benefits, but at the cost of short-term pain in the form of lower wages and greater unemployment for natives. But most economists now believe that Card’s findings were correct: Immigrants bring long-term benefits at no measurable short-term cost."

Political implications

Economics isn't the only part of the equation. An even bigger concern about immigration than job losses for domestic workers are benefits being taken by immigrants. The usual accusation is: "they've contributed nothing but are taking away from the system". This is particularly troubling in Britain which has universally accessible health care and welfare services, which according to the prevalent opinion of the British population, tend to be overcrowded by immigrants.

A further issue is the problem of assimilation of immigrants. There can exist entire neighborhoods where no one even speaks the language of the country they're in. This is a problem both the US and Europe are increasingly facing. Many immigrants cluster in certain neighborhoods where apparently the same rules don't apply. By doing this they self-select themselves out of the domestic society and it becomes very hard for them to assimilate. Particularly for the first-generation immigrants. There is always an issue of respecting one's culture, but in some cases this may go too far where the minority fails to respect the culture of the host nation. As crime rates increase in such areas, that's when the issue truly becomes political. And then it's quite difficult to use economic reasoning to solve the immigration issue. No one wants to hear about the long term benefits of net immigration, or how they increase domestic productivity, if violence is escalating (just think of France). If the benefits are not immediate and quite obvious, no one really takes them into consideration. It's easier to make inferences on our immediate observations. After all, we have a tendency of highly discounting the future.

However the most interesting thing about surveys of opinions about immigration is the location and the relative exposure to immigrants. For example in London, one of the most multicultural cities in the world, its citizens share the most liberal views about immigration. As you move further down the line, the less immigrants a constituency has, the more likely it will see immigration as a crucial issue. People like to exaggerate as well. In the same survey measuring sentiment towards immigration, the people were asked how many foreign-born immigrants are there in the UK. The answer on average was 31% of the population. The actual number is 13%.

In the next text I'll present some more evidence on immigration vis-a-vis job creation, labor market performance and education.